Analysis of Coca-Cola Strategy

The Coca-Cola Company was founded in the United States of America in 1861 and now has a presence in over 200 countries worldwide. The corporation has developed over time to become the market leader not just in the soft drink sector but also one of the top and biggest global multinationals (The Coca-Cola Company, 2017). Coca-Cola is recognized for designing and putting into practice an excellent business model that has kept it at the top. One of the guiding principles that seems to direct the company's activities is aggressive marketing. The company has the most diverse brands portfolio in its industry with the signature brand being coke soda. Coca-Cola continues to extend its brands network mainly through acquisitions and franchising. However, the lucrativeness of the beverages and soft drinks industry has continued to attract many other players seeking to as well have a share of the beverage market; some of these competitors are such as PepsiCo, Dr. Pepper, Snapple Group and the Australian company- Red Bull. This paper seeks to provide internal analysis of Coca-Cola strategy which will encompass a critical analysis of how well Coca-Cola has performed financially as compared to its major peers, an analysis of the company’s competitive strategy and competitive positioning, the value proposition that differentiates Coca-Cola company and its chosen segments from that of its peers and analysis of Coca-Cola strategic capabilities and distinctive core competencies guiding its sustainable competitive advantage.

Strategic Financial Analysis

Financial analysis of Coca-Cola will entail quantitive analysis of the firm as compared to its peers- Dr. Pepper Snapple Group Incorporation, PepsiCo Incorporation and Nestle (Stickney, Brown & Wahlen, 2004 p. 683). The metrics for evaluation will encompass profitability ratios, liquidity ratios, asset utilization and debt utilization (Deichert, Ellenbecker, Pesarchick, Klehr, E., & Ziegler, 2006 p.107).

Liquidity Ratios

Liquidity ratios aim at evaluating the companies’ abilities to meet their debt obligations (Bodie, Z., 2013 p.371). Liquidity evaluation is achieved through determination of current ratio, current ratio, quick ratio and networking capital to assets (Khan & Guruli, 2015 p.372). Concerning liquidity, three competitors except nestle signify no significant advantage over the other as all of them demonstrate strength and ability to meet both their short and long-term debt obligations. According to Yahoo!Finance and Bloomberg BusinessWeek, three companies-Coca-Cola, Dr. Pepper and PepsiCo tie both in current ration and quick ratio at 1.1 and 0.8 respectively while nestle stands at 0.9 and 0.6 in the same respective ratios.Nestlé’s inability to meet the minimum threshold for liquidity which is 1 point both in current ratio and quick ratio signifies liquidity disadvantage and thus its inability to comfortably meet its short and long-term debt obligations comfortably.Coca-Cola has the highest net working capital to assets standing at 0.047, PepsiCo comes second with 0.022, pepper Snapple group third with 0.012 and nestle lags behind with -0.014.The net working capital to assets indicates Coca-Cola’s slight working advantage than its peers.

Asset Utilization

The asset utilization ratios measure the efficiency of the firm or how efficient the company can utilize its assets (Das, 2017 p.20). Examination of asset utilization has considered the receivable turnover, fixed-asset turnover, inventory turnover and the total asset turnover.

The asset utilization for the four peers is almost within the same range. However, the Coca-Cola Company has almost the lowest inventory turnover which may signify a possible weakness of the company regarding delayed inventory replace which might be as a result of low sales or inventory levels which are high. On the other hand, pepper Snapple group incorporation indicates better inventory management as it has the highest inventory turnover; this means an added advantage of the company regarding inventory and fixed-asset turnovers as compared to the competitors. Nonetheless, the asset utilization for all the companies is almost at par, and therefore there is no significant advantage between the peers.

Debt Utilization

Debt utilization indicates how well the company is able to utilize its liabilities or debt. Total debt to equity, total liabilities to totals assets is some of the considered rations in the evaluation of the peers’ debt utilization. The total debt to equity ratios for pepper Snapple group, Coca-Cola, nestle and PepsiCo are 123.0, 98.3, 44.5, and 126.6 respectively. Total liabilities to total assets ratios in the same company are ordered are 74.5, 61.5, 50.4, and 70.0 respectively; and times interest earned is 30.75, 23.48, and 10.24 in the respective order exclusive of pepper Snapple group incorporation.

From this data, the Coca-ColaCompany demonstrates high ability to manage its liabilities as the asset levels are beyond liabilities. However, nestle is the leading player in debt utilization. Coca-Cola’s ability to efficiently manage its liabilities and debt gives it distinction credit rating (AA) and thus a strong financial position. On the contrary, nestle is at higher financial risk due to its high levels of equity as indicated in debt to equity ratio. High levels equity may mean a drag on retained earnings. Moreover, equity is considered more expensive than debt.

Profitability

Coca-Cola has the most outstanding profitability ratios as compared to its peers; this is regarding gross profit margin, return on assets, and return on equity. The percentage gross profit margin for pepper, Coca-Cola, nestle and PepsiCo is 58.3%, 60.32%, 47.58%, 52.22% respectively; ROA- 7.5%, 8.44%, 7.51%, 7.97%; ROE-27.69, 27.92, 18.3, 28.7 respectively. Profitability is critical in the evaluation of the firms’ performance, and they indicate the level of the firms’ sales, the market share, brand loyalty and the firms’ abilities to price their products of which Coca-Cola tops in all these dimensions thus making it the leading player in the beverage industry.

Competitive Strategy Analysis

Coca-Cola being the leading brand in the soft drinks and beverages industry means that it has to work its strategies within the five forces competitive model to maintain its market position and prevent its loss to the competitors (Crossan, Fry& Killing, 2004 p.562). As rivalry among existing competitors continues to heighten regarding pricing and brand extension, Coca-Cola has continued to release new brands such as minute maid, new sizes such as 200ml coke soda bottle and other brand extensions in its efforts to create differentiation and switching costs by different appearance, taste, and appeal (Esch & Strödter, 2008 p.38). To achieve this, the company has embarked on aggressive marketing to create awareness of its new developments on product features and extensions. Moreover, Coca-Cola has capitalized in building a robust and extensive distribution network that aims at keeping the relationship between suppliers and buyers strong.

Coca-Cola continues to invest more and more in production and expansion of its distribution system. Furthermore, billion dollars have been invested by the company in marketing and advertising to attain differentiation of its products from its peers through strong awareness. This huge investment is one of Coca-Cola’s competitive strategies to threaten new entrants into the market who might robe it some of its market shares (Wright, P., 1987 p.93).As a result, new entrants find it difficult to compete with giant rivals such as Coca-Cola head on.

Soft drinks and beverage industry are highly exposed to the threat of new substitutes. As such, Coca-Cola applies a competitive strategy that seeks to neutralize this threat by producing counter brands to counter the effect of a substitute posing competition to it (Balmer & Gray, 2003 p.972). For instance, Coca-Cola released Novida to counter the effect of Álvaro in the non-alcoholic drinks segment; this was on Coca-Cola realizing that the new nonalcoholic drink(Álvaro) could act as a great option to coke soda for many consumers. Introduction of Novida by Coca-Cola marked the diminishing popularity of Álvaro. Moreover, as result of the prevailing generation of savvy customers and health-conscious consumers, Coca-Cola has diverted to the production of health products such as diet coke, C2, and Coke Zero sugar to fit with the needs of the generation. Many soft drink companies are unable to provide substitutes for such products hence placing Coca-Cola at the higher competitive position.

Capital is another competitive advantage for Coca-Cola. Coca-Cola is the industry leader regarding capitalization with interests in carbonated and none carbonated drinks. The heavy capitalization enables Coca-Cola to compete at a higher level above its peers and as well largely contributes to its market dominance with about 50 percent market share.

Coca-Cola Value Proposition

Happiness is the dominant value proposition for Coca-Cola. ‘The coke side of life’ is the slogan behind the Coca-Cola’s happiness value proposition. The slogan is a representation of happiness for every single moment a can of coke or any other coke product is opened. The slogan is a reflection of joy, comfort and sociable surrounding on consumption of Coca-Cola products. Besides, Coca-Cola’s uniqueness is a reflection of brand sustainability. Through uniqueness, it becomes difficult to counterfeit, copy or imitate Coca-Cola’s products and especially the secret formula of the coke can.

Coca-Cola’s Distinctive Core Competencies

Coca-Cola is renowned for strong and sustainable administrative control, extensive distribution system and a strong brand which are almost incomparable to its peers. Coca-Cola ranks as one of the famous branded drink globally. The efficiency and effectiveness of Coca-Cola’s distribution system are exceptional. In over 200 countries, you hardly lack coke products in every retail outlet. Regarding administration, Coca-Cola’s human resource policy is founded on the slogan ‘think globally and act locally’ which is the major source of strength for Coca-Cola’s strong administration.

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